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As the deadline to file federal taxes approaches Monday in most states, questions remain for many about what to expect this tax season, and when to expect their refunds. The IRS is warning that refunds may be delayed for many this year due to budget constraints, staffing shortages and backlogs. Elaine Maag, a senior fellow at the Urban-Brookings Tax Policy Center, joins John Yang to discuss.
Monday is the deadline for most American taxpayers to file their federal taxes. And because of the pandemic and bureaucratic hangups, this tax season is shaping up to be even more complicated than normal.
John Yang has the story.
Judy, while taxpayers still have to get their returns in on time, the Internal Revenue Service is warning that many refunds may be delayed this year due to budget constraints, staffing shortages and backlogs.
The IRS started the year with a backlog of about 10 million unprocessed returns from last year's tax season.
Elaine Maag is a senior fellow at the Urban-Brookings Tax Policy Center at the Urban Institute.
Elaine Maag, thanks for joining us.
Most taxpayers are getting an extra weekend this year, because this is — today, the 15th, is a holiday in the District of Columbia. For someone who hasn't filed yet, what's your top tip?
Elaine Maag, Urban-Brookings Tax Policy Center:
I have two.
The first is, please, do whatever you can to get it in by the 18th. Use this weekend and — to your benefit.
The second, though, is file your return electronically. And if you're owed a refund, ask that to be delivered via direct deposit. The reason you want to do this is to try to keep your return out of that backlog that you mentioned at the top of the program.
When the IRS gets a paper return in, the first thing they have to do is transcribe all the information it, so that they can begin processing it. Because there's already a backlog, your return could be sitting for months before it even gets looked at.
Why that big backlog?
So there's a few reasons. The first is the big amount of paper that the IRS is dealing with.
About 10 percent of people file their tax return by paper each year. Sometimes, it's because they have to. Their return has been rejected electronically, maybe because someone tried to file a false return with their Social Security number, or someone else claimed a dependent they're claiming.
But, for whatever reason, this creates a large workload for the IRS. The pandemic created additional backlogs, because we went through a tax filing season last year that not only lasted a lot longer than possible — than typical. They were simply unable to open the mail during part of it.
Another driver is the tremendous amount of new work that the IRS has had placed on them. And while I think they have done a relatively great job at handling it, it's still something new. So, they delivered three economic impact payments. One of those was in this tax year. Two of them were in last year.
And once they finished that work, starting in July, they started delivering the advanced child tax credit. Typically, families with children received that credit when they filed their tax return. But for this one time, they started delivering checks that could give you up to half of your credit between July and December. That was extra work for the IRS.
And, finally, the one that probably makes me the most upset is that Congress routinely passes laws affecting tax filing very late in the process. In some cases, it means people actually have to file an amended return, which goes back to adding more paperwork on to the IRS's desk.
You mentioned the child tax credit. The IRS was also distributing the stimulus payments. You had a lot of people collecting unemployment because of the pandemic.
How have those complicated this tax filing season?
So, all of it can make tax filing more difficult.
The economic impact payments, I found, as a volunteer tax preparer, people have difficulty remembering if they even got it. So you have to fill out on your tax reform return whether you received the payment. In some cases, we have to work through people's bank accounts looking for these payments to see if they received them.
The child tax credit can complicate filing for the same reason. We need to know how much you already received, so that we know how much you're going to get as a refund on your tax return this year. In some cases, people who were not required to file tax returns need to file this year to claim that child tax credit, because, for the first time, it went to families with even very low incomes.
The unemployment complicates tax filing for families, because, in many cases, people don't know the income is taxable. So they receive it and then they owe that tax at tax time because they haven't had any withholding taken out during the year.
What else have you been seeing?
You mentioned you're a volunteer tax preparer. What else have you been saying that — confusing people or problems that have been cropping up?
The number one thing that has been very stressful for the low-income families I deal with is employers who have changed.
Last year, people — or, in 2020, people were working for a construction industry or housekeeping service, and they were considered an employee. So, during the time they were employed, taxes were withheld, the employer paid their share of payroll taxes, and the withholding of the employee share was taken into account.
This year, employers changed and considered these employees in many cases to be consultants. That's a surprise to families when they come in, because now they owe taxes on all of the money they have earned, rather than having had it withheld throughout the year. So, even families who get relatively large refunds typically from the Earned Income Tax Credit or the child tax credit end up owing substantial amounts of tax this year.
Elaine Maag of the Urban-Brookings Tax Policy Center at the Urban Institute, thank you very much.
Thank you so much.
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John Yang is a correspondent for the PBS NewsHour. He covered the first year of the Trump administration and is currently reporting on major national issues from Washington, DC, and across the country.
Courtney Norris is a deputy senior producer of national affairs for the NewsHour. She can be reached at email@example.com or on Twitter @courtneyknorris
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